Can a Self-Employed Carpenter Claim Income Protection Premiums as a Tax Deduction?

Yes—according to the Australian Taxation Office (ATO) guidance updated 8 June 2026, a self-employed carpenter can claim the qualifying premium component of income protection or continuing salary cover that protects salary and wages; a premium, or any part of a premium, compensating for physical injury is not deductible. In the ATO’s example under guidance updated 8 June 2026, the $250 monthly premium comprises $175 for deductible income protection cover and $75 for non-deductible personal injury cover.

Figures checked 1 October 2026.

What part of a combined policy can be claimed?

Look at what each part of the policy covers rather than treating the whole premium as one deductible expense. The ATO uses Deanne’s policy to demonstrate the split:

This is a general ATO example rather than a carpenter-specific premium quote. The policy’s product name alone is not enough: check the PDS to identify whether a component replaces salary and wages or compensates for physical injury.

Where is the deduction entered in myTax?

For the 2024–25 income year, covering 1 July 2024 to 30 June 2025, the ATO’s myTax 2025 Other deductions instructions, updated 2 June 2025, list income protection premiums under Other deductions.

For that return period:

• Go to Prepare return and select Add/Edit at the Deductions banner.
• At the Other deductions banner, select Add.
• Select the deduction type.
• Enter a short description and the amount.
• Check any deductions pre-filled through myDeductions and add anything missing.
• Select Save, then Save and continue when the Deductions section is complete.

The same instructions direct sole-trader business expenses to Business income or losses, so keep the income-protection deduction separate from ordinary carpentry expenses. If you are lodging a different income year, check that year’s myTax instructions.

The ATO’s instructions updated 2 June 2025 also say to keep records for 5 years, in most cases, from the date you lodge your tax return.

Do income-replacement payments have to go in the tax return?

Yes. A payment replacing salary and wages under an income protection policy must be included in your tax return, whether it is:

• a regular policy payment; or
• a lump sum.

For the 2024–25 myTax return, the ATO directs taxpayers to report the payment at Salary, wages, allowances, tips, bonuses or Other income.

A payment for personal injury or total and permanent disability is treated differently: the ATO describes it as capital and says it might be assessable as a capital gain. That is why the payment description and the policy PDS matter.

Which premiums are not deductible?

The ATO guidance excludes:

• a premium, or part of a premium, compensating for physical injury;
• life insurance premiums;
• trauma insurance premiums;
• critical care insurance premiums; and
• a premium for a policy taken through a super fund where the premium was deducted from super contributions.

A combined policy may therefore contain both deductible and non-deductible components. Allocate the premium according to the cover described in the policy rather than claiming the full amount automatically.

What should be checked before lodging the return?

The PDS and the ATO page answer different questions. The PDS identifies what the policy covers; the current ATO guidance explains the tax treatment.

Before claiming:

• separate income protection from personal injury or other capital cover;
• check that the calculation matches the premium statement;
• confirm where salary-replacement payments must be reported;
• use the myTax instructions for the income year being lodged; and
• retain the records needed to support the claim.

This is general information, not financial or legal advice. Check the current Australian Taxation Office page and your policy’s PDS before claiming a deduction.

Sources

• Income protection insurance | Australian Taxation Office
• myTax 2025 Other deductions | Australian Taxation Office

FAQ

Can I claim the whole premium on a combined policy?

Only the qualifying income protection component is deductible. A premium or part of a premium compensating for physical injury is not deductible.

Are regular and lump-sum income protection payments taxable?

A payment replacing salary and wages under the policy must be included in the tax return, whether regular or paid as a lump sum.

Are life, trauma and critical care premiums deductible?

No. The ATO specifically lists these as examples of premiums that are not deductible.

What if the policy was bought through super?

If the premium was deducted from your super contributions, the ATO says you cannot claim a deduction for it.